EMAG

The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

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Documents: 12/11/2003 - Interim Report for the half year ended 30 June 2002 - plus ca change

Equitable Life Assurance Society - "The Society"

Interim Report for the half year ended 30 June 2002 - plus ca change

The Interims to 30 June 2003 were published last week and I now had a chance to look through them to compare them with the annual Accounts and last year's Interims. The overall message is Plus Ca Change - once again the Interims show the least information available possible consistent with legal requirements; as do the Accounts. They are not designed to assist members make decisions about their savings.

£50 million difference in provisions and expenses

On page 6 under Expenses and Provisions and in the reconciliation of the opening to closing fund for future appreciations - FFA, £97m is shown as the increase in provisions and expenses. On page 15 note 6.2(iv) detail is given in the same format as previous years of the Specific Provisions. These have changed by £47 million so that they now total £712 million at 31 June 2003. The difference between the £47 million charge and the £97 million is £50 million: this could be explained because the actual expenditure on the specific circumstances of the provisions, eg. GAR rectification, additional expenses, eg. legals, pension transfers, opt outs and FSAVCs or other miscellaneous liabilities. Sadly it is just not clear where the £50 million has gone to.

Level of expenses

The "acquisition and administrative expenses" at £62 million (note 18 page 46) for the six months are £6 million down on the comparative period for 2002. The "investment management" expenses including interest is £25 million for the half year - only £4 million down on the comparative six months to 30 June 2002. But the investments are now at £16.08 million as opposed to £17.765 million and £22.665 million at the end and beginning of 2002. In the six months to June 2002 there was said to be negotiations with HBOS to lower costs. Clearly unsuccessful!

An analysis of debt and other fixed interest securities - £13,108 million.

The largest category of assets held by the 'with profit' fund is the above which includes £13,065 million of listed investments at current market value. This represents around 82% of the assets of the WP Fund. However there is no mention of the susceptibility of the value of the investments to interest rate movements. There is a comment that "the eight in favour of fixed interest securities and bonds within the investment portfolio results in there being limited scope for its growth, as any changes to bond values resulting from movements in bond yields are mirrored in an equivalent and largely offsetting current changes in the value of liabilities". This is a 'trust me I am an actuary' type statement because not only is, there no analysis of fixed interest, securities by age, currency, nature (and no mention of any hedging) but it is matched by the lack of analysis of the liabilities into any categories too.

Analysis of 'technical provision'

Like the other big number above in the accounts of the assets, there is no proper analysis of the 'technical provision'. The provisions as above from mis-selling GAR's, etc. are included in it but how the balance is dealt with between the various classes of members in the WP Fund is once again not given. Once again in note 6.2 on page 14 the statement is made is that 'the provisions are based on guaranteed benefits only and do not include non-guaranteed final bonuses'. The amount of non-guaranteed final bonuses, ie. the promised pay-out that has been made to every policyholder is therefore not disclosed anywhere in the these interim statements (as it is not disclosed in the Accounts). It could be a grossly unjustifiable figure or not as the case may be. Reverting to the guaranteed obligations, only the total of these are included in the valuation of the long-term business technical provisions in the balance sheet. The report states that the Society's objective is for net income to be adequate in future years but to at least meet those guarantees and any increase in guarantees. There is little chance therefore for the Society's income and gains to meet the terminal bonus or am I missing something?

Bonuses

The Interims do have a paragraph which is headed "Investment Performance and Capacity to Pay Bonuses" but the following paragraph does not include any further mention of bonuses, bonus values declared and so on. I have searched carefully but the whole text of the Interims is silent about bonuses. I cannot understand why there can be no mention of what bonus expectation there is for the whole year.

Surrenders

Note 4 on page 13 shows that the outflow of funds on non-contractual surrenders is down. Because there is no analysis of the technical liabilities it is not possible to estimate how far this can go - are there any funds left for surrenders? This is not a question that is capable of answer. Of course if a member surrenders at a non-contractual event then he or she meets a MVA - Market Value Adjustment on that surrender. There is no mention anywhere through the interim figures of the need for the MVA - is it adequate, is it fair, is it inequitable? It simply is just ignored. For those of us who may wish to surrender on a non-contractual basis or choose to wait for a contractual event, what assistance is the Interims or the Accounts in this connection?